Ch 2 The Economic Problem

Ch 2 The Economic Problem - The Economic Problem Chapter 2...

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The Economic Problem Chapter 2 1
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Differing Specialties Consider the following problem: Brain surgeon’s BMW 335i needs an engine repair Two individuals could complete the repair Brain Surgeon could fix in 1 hour As a Surgeon he makes $1000 an hour Mechanic could fix in 4 hours As a Mechanic he makes $100 an hour 2
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Advantages Absolute Advantage : Production of a certain good (engine repair) can be achieved in less time or more can be produced in the same time Brain surgeon has the absolute advantage Brain surgeon Time: 1 hour Mechanic Time: 4 hours Comparative Advantage : Cost of production is the lowest Mechanic has the comparative advantage 3
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Advantages Example 4 4 12 3 10 # Guns produced per hour # of pounds of butter Produced per hour Lester Aylee
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Choice of either 4 guns or 12 lbs of Butter Thus, we can say, 4 guns cost 12 lbs of butter Or, 12 lbs of butter cost 4 guns Simplifying 1 gun costs 3 lbs of butter
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This note was uploaded on 02/23/2012 for the course ECONOMICS 251 taught by Professor Kelly during the Summer '11 term at Purdue.

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Ch 2 The Economic Problem - The Economic Problem Chapter 2...

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